Motilal Pesticides (I) Pvt. Ltd. v. Commissioner Of Income Tax, Delhi-Ii .

Order

1. The judgment of the Delhi High Court in Motilal Pesticides (I) (P) Ltd. v. CIT (1994) 207 ITR 636 (Del) is assailed before us. It concerns interpretation of Section 80-HH of the Income Tax Act, 1961 (for short “the Act”) and pertains to Assessment Years 1979-80 and 1980-81. The question of law which the High Court answered in the affirmative and in favour of the Revenue and against the appellant is as under:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction under Section 80-HH of the Income Tax Act, 1961, on the gross profit of Rs. 34,30,035 (Liquid Section) but on the net income therefrom, for Assessment Year 1979-80?”

2. The appellant had claimed relief under Section 80-HH in respect of its Liquid Section which had been newly set up in a backward area. It was the contention of the appellant that relief should be allowed on the gross income and not on the net income. Section 80-HH in relevant part is as under:

“80-HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof.”

3. In support of its submission in the High Court the appellant placed reliance on a decision of this Court in Cloth Traders (P) Ltd. v. CIT (1979) 3 SCC 538, (1979) 118 ITR 243. This judgment was delivered on interpretation of Section 80-M of the Act. The relevant part of Section 80-M is as under:

“80-M. (1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to,—

4. Both Sections 80-HH and 80-M fall in Chapter VI-A relating to deductions to be made in computing total income. It will be seen that the language of Sections 80-HH and 80-M is same. It was held in Cloth Traders case (1979) 3 SCC 538, (1979) 118 ITR 243 that deduction is to be allowed on the gross total income and not on the net income. But then the decision in Cloth Traders case (1979) 3 SCC 538, (1979) 118 ITR 243 was overruled in Distributors (Baroda) (P) Ltd. v. Union of India (1986) 1 SCC 43, (1985) 155 ITR 120. After the decision in Cloth Traders case (1979) 3 SCC 538, (1979) 118 ITR 243 the two Sections 80-AA and 80-AB were introduced by Finance (No. 2) Act, 1980. While Section 80-AA was to have retrospective effect w.e.f 1-4-1968, Section 80-AB was to have operation w.e.f 1-4-1981. Section 80-AA had the effect of effacing the decision of this Court in Cloth Traders case (1979) 3 SCC 538, (1979) 118 ITR 243 which had interpreted Section 80-M. Section 80-AB was made applicable to all the sections in Chapter VI-A except Section 80-M. In Distributors (Baroda) case (1986) 1 SCC 43, (1985) 155 ITR 120 however, this Court specifically overturned its earlier decision in Cloth Traders case (1979) 3 SCC 538, (1979) 118 ITR 243 and held that deduction is to be allowed only on the net income and not on the gross income. With reference to Section 80-AB this Court said it was merely of clarificatory nature and the decision of this Court in Distributors (Baroda) case (1986) 1 SCC 43, (1985) 155 ITR 120 is thus irrespective of Section 80-AB of the Act. The High Court, therefore, relying on the decision of this Court in Distributors (Baroda) case (1986) 1 SCC 43, (1985) 155 ITR 120 answered the question in favour of the Revenue and against the assessee.

5. Mr Ramamurti, learned Senior Counsel appearing for the appellant submitted that even though Cloth Traders case (1979) 3 SCC 538, (1979) 118 ITR 243 was overruled in Distributors (Baroda) case (1986) 1 SCC 43, (1985) 155 ITR 120 but both the cases pertained to Section 80-M only and this Court had no occasion to consider the application of Section 80-AB with reference to Section 80-HH of the Act. He said that Section 80-AB was specifically introduced w.e.f 1-4-1981 and it would have no application to Assessment Years 1979-80 and 1980-81 which were involved in the present case. The effect of Section 80-AB was now that deduction would have to be made from the net income and not from the gross income. But then in all fairness Mr Ramamurti also referred to another decision of this Court in H.H Sir Rama Varma v. CIT 1994 Supp (1) SCC 473, (1994) 205 ITR 433 where this Court observed that on a parity of reasoning with Section 80-AA as given in Distributors (Baroda) case (1986) 1 SCC 43, (1985) 155 ITR 120 it must be held that Section 80-AB was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the income specified under the head ‘C’ in Chapter VI-A of the Act. Mr Ramamurti also referred to a circular dated 10-5-1982 issued by the Central Board of Direct Taxes in support of his submission but then this circular has since been withdrawn.

6. That being the position we affirm the judgment of the High Court. There is no merit in these appeals and are dismissed.